The Bailout of the Year

The Wall Street Journal reports:

Guess who's asking Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke for a bailout now? Hint: They are members of an exclusive club who bet wrong on the credit markets last fall. No, it's not a cabal of Wall Streeters, but Democrats in Congress.

We're referring to the "student loan crisis" now appearing in a media outlet near you. In September, Congress vowed to make education more affordable by passing the "College Cost Reduction and Access Act." The law reduced the interest rates borrowers pay on federally insured student loans. Backed by the Federal Family Education Loan Program, these loans account for more than 70% of education lending. Taxpayers will fork over $7 billion by 2012 to pay for the rate cuts.

But Congress didn't stop there. Convinced that the private lenders who make these loans were reaping too much profit, Congress also cut the yield on each loan. The return on the popular Stafford loan for undergrads was reduced by 70 basis points. For loan consolidations, Congress cut returns by 65 basis points. In a vibrant market, banks might have absorbed these hits and continued to lend. But the combination of legislative fiat and fewer investors willing to buy asset-backed securities amid the credit crunch has put the squeeze on lenders.

Read the whole sickening article.